What the World Economy Looks Like Going Into 2018

As we close out the year 2017, it’s time to look forward to the new year and see what the world economy may have in store for us in 2018.

-The stock market in the US and Europe was very bullish this year. Many companies on the S&P 500, Dow Jones, and other stock market indexes recorded record high prices this year. By far the biggest standout was Bitcoin, which began to explode in the second half of 2017. The price of one bitcoin skyrocketed from around $1,000 at the start of the year to over $19,000 in early December. The price has since centered around $15,000 for now, but other types of cryptocurrency, such as Litecoin and Ethercoin, could see a similar bubble emerge in 2018. If the popularity of digital currency spreads among investors, it is likely we could see businesses start accepting cryptocurrency as a legitimate payment in the future. That is unless the government steps in and bans the use of cryptocurrency, which is definitely possible.

-The GOP tax bill (with its reform bill pending) passed the House and Senate. According to the Tax Policy Center, 80% of Americans will see a tax cut, and corporate taxes will also be gutted to around from 35% to around 20%. This new tax reform will encourage more business spending and more investment in the private sector, but a path to another recession could be looming in the future if government spending is not adjusted in correlation with the tax cut. Legislation will need to pass through Congress quickly to cut spending proportionally, otherwise, the US deficit may increase and create a path for another recession in 2018.

-Europe’s GDP growth rate will close out at about 2.2%, which is not only higher than expected but it is the highest rate of growth over a 1-year period in the last decade. I find this very surprising due to the political uncertainty of Europe over the past couple years. The United Kingdom voting to leave the European Union in June 2016 created a time of political uncertainty and riskiness that typically results in slower growth and less investment. Secondly, this rate of growth is surprising due to the havoc from the Catalonian crisis occurring in Spain. Eastern Europe has seen countries top 3 and 4% growth rates for the year. This is largely because Eastern European countries have smaller economies and have improved governance to incarcerate corrupt government officials, so expect Eastern Europe to continue this growth rate and lift their citizens out of poverty.

-It is within the realm of possibility that President Trump could scrap NAFTA and overhaul trade deals with Asia in 2018, as stated in my previous article. America is heavily dependent on China and Japan for all types of goods, and imposing higher tariffs and blocking pathways to free trade with Asia could come back to bite both America and Asia with sluggish growth in the near future.

-Following the recession in 2008, the Federal Reserve has set interest rates at almost 0%, and almost a decade later, interest rates are still only hovering around 1%. It’s possible with low unemployment and a bull market that the Federal Reserve will bump interest rates to about 2% in 2018.

Overall, it is very difficult to predict the events that will occur in the oncoming year. The state of the global economy correlates strongly with the unpredictable state of the political world, where trends can come to an abrupt end and leave economists scrambling to make new forecasts. In the end, only time will tell how the world will evolve in 2018.